Corporate insolvency increase in second half of 2016

23rd January 2017

Analysis from KPMG has shown that 2016 saw the reversal of a six year downward trend in levels of insolvency for British businesses, following an uptick in companies entering into administration in the second half of the year.

The numbers, taken from notices in the London Gazette, show that 1,174 companies, or groups of companies, entered into administration across the UK during 2016, compared with the 15-year low of 1,111 in the previous year.

Chris Pole, restructuring partner at KPMG in the Midlands, believes ongoing uncertainty in the geo-political and economic environment, coupled with the depreciation of sterling, is now starting to be felt more keenly by the region’s businesses.  “Although the numbers have risen, the failure rate of region’s businesses following the Brexit vote was lower than initial predictions. However, while businesses may have adapted well to Brexit, it’s likely that they will face ongoing financial pressures as a result of the uncertainty in the market.”

Looking at which sectors were most vulnerable in 2016, the manufacturing industry fared the worst in the Midlands with 33 firms entering administration, largely due to an increase in costs for imported raw materials, which subsequently, squeezed profit margins. Nationally, the construction industry was hit the worst, with 174 firms becoming insolvent.

Chris Pole said “While there are many positive signs for 2017 including continued GDP growth, low unemployment and low interest rates, and increased order books in some sectors, I still sense a degree of uncertainty such that I suspect businesses will continue to adopt a cautious approach until matters become clearer after the triggering of Article 50. Inflationary pressures will also start to play their part. So while I do not foresee any sudden spike in insolvency numbers on the horizon, I would not be surprised to see the slight steady uptick in administrations continue over the months ahead.”